It is no secret that a majority of Texas corporations are privately held companies controlled by a small number of shareholders.  The controlling shareholders in these corporations may have a duty not to oppress the economic interests of the shareholders holding a minority interest. There are currently three cases pending before the Texas Supreme Court that will address the cause of action known as shareholder oppression. 

“Texas courts have generally recognized two non-exclusive definitions for shareholder oppression:

1. Majority shareholders’ conduct that substantially defeats the minority’s expectations that, objectively viewed, were both reasonable under the circumstances and central to the minority shareholder’s decision to join the venture; or

2. Burdensome, harsh, or wrongful conduct; a lack of probity and fair dealing in the company’s affairs to the

prejudice of some members; or a visible departure from the standards of fair dealing and a violation of fair play on which each shareholder is entitled to rely.” Ritchie v. Rupe, 339 S.W.3d 275, 288 (Tex. App. – Dallas 2011, pet. granted).


Cardiac Perfusion Services, Inc. v. Hughes, 380 S.W.3d (Tex. App. – Dallas 2012, pet. filed)

In this case the majority shareholder and minority shareholder were cardiac perfusionists who operated heart-lung machines during open-heart surgery.  One year after the formation of the corporation under which these services were performed, a 10% stake in the company was sold to the minority shareholder.  The shareholders entered into a buy-sell agreement that required the shareholders of the corporation to purchase the stock of another shareholder, at book value, upon termination of that shareholder’s employment with the corporation. Six years later the minority shareholder’s employment was terminated.  The majority shareholder sued to exercise his contractual right to purchase the minority shareholder’s interest at book value. The minority shareholder counter-sued for shareholder oppression alleging that the majority shareholder utilized the corporation as his personal vehicle to pursue his own self interests and misused corporate funds.
The jury found that the majority shareholder suppressed payment of profit distributions to the minority shareholder; paid himself excessive compensation; improperly paid his family members; improperly paid his personal expenses using company funds; and used control of the company to lower the value of the minority shareholder’s stock.  The jury found that the fair value of the minority’s shares was $300,000.  The trial court found that the majority shareholder engaged in shareholder oppression and required him and the corporation to purchase the minority’s shares at what the jury found to be the fair value – $300,000.  The court of appeals upheld the trial court verdict and this case may be ultimately decided by the Texas Supreme Court.

Ritchie v Rupe, 339 S.W.3d 275 (Tex. App. – Dallas 2011, pet. granted)

In this case, the primary complaint of the minority shareholder was that the majority shareholders refused to meet with potential buyers of the stock of the minority shareholder, making the minority’s interest unmarketable.  The jury found in favor of the minority shareholder and the court ordered the corporation to buy the minority’s shares at their fair market value.  The court of appeals affirmed and remanded the case to the trial court to make further determinations on the fair market value of the minority’s shares, taking into account the discount of the value of the minority’s interest based upon lack of marketability.  This case is now pending before the Texas Supreme Court for final review.

Argo Data Resource Corporation v Sharithaya, 380 S.W.3d 249 (Tex. App. – Dallas 2012, pet. filed)

The court of appeals reversed the trial court’s judgment in favor of the minority shareholder on the minority’s shareholder oppression claim, which was based, at least in part, on the payment of excessive compensation to the majority shareholder.  The trial court ordered the majority shareholder to require the corporation to pay an $85 mil. dividend as equitable relief for the majority’s alleged oppressive conduct.  The court of appeals found there was insufficient evidence to support a finding of shareholder oppression and the case may ultimately be decided by the Texas Supreme Court.